Housing levy evolves into tax only worker will pay

The housing levy the government had defended as a saving and a win for employees since offered them a chance into their employers' vaults, has now transformed into a tax and will be deducted solely from the employee's pay.

The National Assembly Committee on Finance and National Planning rejected the pleas of Kenyans and lobbies that noted the levy would play a part in making life unbearable by reducing the money that employees take home.

The committee chaired by Molo MP Kuria Kimani retained the levy albeit at a lower rate of 1.5 per cent of an employee's basic pay. This is from the earlier proposal of three per cent.

The MPs also dropped the requirement to have employers match the contributions of their employees.

The money is to be used for the construction of affordable houses.

"The proposal was amended to make it a levy as opposed to a mandatory contribution. Further, the rate was reduced from three per cent to 1.5 per cent," said the committee in its report on the Finance Bill 2023 tabled in Parliament on Monday.

By making it a levy as opposed to a contribution, the money will not be refundable to employees as in the earlier proposal.

The National Treasury had initially proposed a three per cent contribution that would be matched by employers also at three per cent.

The contributions were capped at a total of Sh5, 000 for both employee and employer.

Affordable housing levy

"There has been a misconception that the affordable housing levy is a tax yet it is not," the Housing ministry has in the past said, defending it as a saving.

"The levy is a savings plan deduction with benefits accruing to the employee. It will also enhance the national saving plan."

It had said employees who would not get affordable houses could exit the fund after seven years and get their cash.

Other than reducing the take-home pay for Kenyans in formal employment, the levy was also expected to see employers reduce jobs as they tried to contain costs.

There were also numerous calls to make it voluntary.

During public participation, many Kenyans opposed the housing levy which appeared to be the biggest fault against the Finance Bill.

"The employer contributions will increase the cost of employment and therefore likely to lead to loss of job opportunities," the Kenya National Chamber of Commerce and Industry told the committee in its submissions on the Bill captured in the committee's report.

"In addition, employee contributions would lead to reduced net income in the face of a high inflation rate and high cost of living.

"Alternatively, it will be useful to define an employee for the purposes of this fund and exempt those already with houses...or make it a voluntary contribution."

The Kenya Private Sector Alliance (Kepsa) proposed the implementation of a voluntary contribution system starting January 2024, which should also be matched by the employer.

It added that structures should be in place before the government started collecting funds through the levy.

Ensures constitutionality

"This approach avoids any challenge to private property rights and ensures constitutionality. Regulations for the fund accountability should be developed with the Finance Bill," said Kepsa when it appeared before the committee.

The Trade Union Congress noted that the new levy will spell doom for the workers.

"This will be disastrous to households," said the congress in its submissions to the Finance Committee.

"Introduction of this new levy is irrational and reduces the disposable income available to an employee."

It proposed to make the fund optional until proper consultation and negotiation with workers' representatives is done.